Giving to charity is admirable in itself, but it doesn’t hurt if you can get it. period of non-payment of tax, Very. Unfortunately, in recent years it has been very difficult for individual taxpayers to take advantage of tax incentives for charitable donations. The good news is that things have changed for 2020.
A comprehensive provision under the CARES Act coronavirus stimulus package , passed in March, makes it possible to write off up to $300 in certain charitable contributions without lowering your taxes. According to the Internal Revenue Service, about 9 out of 10 taxpayers currently take the standard deduction and could potentially qualify for this new deduction.
So if you’ve donated money to causes specifically related to the pandemic this year, find out howTo claim this:
How Does the $300 Charitable Contribution Deduction Work?
Previously, you could deduct all of your donations to charity, as long as you took a deduction on your taxes. And in order to deduct deductions, the total amount of your write-offs must exceed the standard deduction. However, the Tax Cuts and Jobs Act, which came into force in 2018, made this a lot harder to do.
In addition to this eliminate multiple deductions, 2018 tax law nearly doubled the standard deduction from $6,500 to $12,000 for individual filers and from $13,000 to $24,000 for joint returns. And each year the standard deduction increases slightly. As a result, way fewer people are now eligible to itemize.
However, under the CARES Act, taxpayers are now allowed to deduct some of their donations for 2020 even if they do not itemize. “They want people to support charities that are fighting the COVID battle,” said Jeremiah Barlow, executive vice president Mercer Consultant,
According to Barlow, this deduction is considered an “above the line” tax deduction. This means you can deduct up to $300 in qualified donations from your taxable income, even if you claim the standard deduction.
And although the goal is to encourage giving to COVID-19 causes, donations to any 501(c)(3) charitable organization may be eligible. However, you can only deduct cash donations. This means that if you donated food, household items or other non-monetary items to a charity, it does not count towards a deduction above $300. Of course, if you plan to itemize, you can normally write off this type of donation.
Also note that this is a tax deduction, not credit, which means you don’t get a $300 dollar-for-dollar decrease in your tax bill. Instead, your taxable income is reduced by $300; The actual savings on your tax bill depend on you tax bracket,
For example, if your income is taxed at 10%, claiming the full $300 deduction will result in a $30 exemption on your tax bill for 2020. If your effective tax rate is 25%, the value of the deduction will be $75. It’s not a ton of money, but every little bit helps, especially in the current economy.
If you plan to claim this deduction, make sure you keep a receipt from the charity or some kind of written acknowledgment on file as proof. You won’t need to submit a receipt with your taxes, but you should have it in case you’re audited.
Will this deduction be available in 2021?
With just weeks left for the year to end, you still have some time to make a qualifying donation and claim this deduction on your 2020 taxes. But what if you missed out and want to reap the benefits next year?
Most of the programs established under the CARES Act expire on December 31. but talks are on for future incentives, and there is no doubt that this deduction may be available next year as well. “I think the purpose of this will still be implemented in 2021,” Barlow said. “The CARES Act was meant to help and handle the economic difficulties associated with what is happening due to COVID, and is expected to continue through 2021.”